The world's largest money manager is making a killing on the hottest investment product around (BLK)

Graham Rapier

Oct. 12, 2017, 11:06 AM

Mat Szwajkos/Getty Images

BlackRock, the world's largest money manager with $5.69 trillion in assets under management, reported better-than-expected earnings on Wednesday, which sent its stock to a record high.

And shares could go even higher, according to Credit Suisse. "Following 3Q17 results, BLK remains our top traditional asset manager Outperform as we forecast strong net flows in 2018/19 and EPS growth of 15-20%," analyst Craig Siegenthaler said in a note Thursday.

The Swiss bank has raised its price target for shares of BlackRock to $612 from $597, 28% above the current stock price of $477.

Most of the company's growth has come from its wildly successful exchange-traded fund business, known as iShares, which Credit Suisse estimates now accounts for half of all US investments in the products.

"We continue to see strong demand for iShares's ETFs driven by the evolution of the US retail channel (from commission-based to fee-based), increased adoption by institutional clients and pricing reductions in its core series. Year to date, iShares accounted for ~50% of total ETF flows in the US," the bank said.

"In only twelve months, BLK has been able to recapture more than 100% of the lost revenue resulting from the October 2016 price cuts (reduced fees on 15 ETFs with ~$85M of annual revs) via increased net flows and market share gains."

Passive investments, like ETFs and other products that track a weighted index rather than a single equity, have steadily eaten away at active managers' portfolios in recent years.

"That's interesting is that, in many regards, if you look at something like an ETF, it is a technology to just give you very efficient, cost-effective exposures," he said. "But even the way that people use ETFs are in the context of making active decisions."

Shares of BlackRock are well ahead of the S&P 500 benchmark this year, up 21.5% compared to the index's 14%.